Home Prices Climb Across Country

The U.S. housing market continued to gain steam in August, with new data showing that home-price increases accelerated over the month while also spreading to more cities across the country.

The Standard & Poor’s/Case-Shiller 20-city home-price index rose 2.0% in August from a year earlier, an acceleration from the 1.2% annual increase in July and the fastest pace in two years, according to a report released Tuesday. Prices were up in 17 of the 20 metropolitan areas tracked by the index, compared with 16 in the report for July and three for January.

The housing recovery—which is being driven by a combination of rising demand, declining inventory and low interest rates—has been a bright spot in a sluggish economy still trying to find its footing.

Tuesday’s report was encouraging to economists because continued and accelerating price growth, at a time when prices gains are usually slowing down after the peak summer sales season, suggests the housing recovery has become self-reinforcing.

“This is a real recovery with legs,” said Ellen Zentner, an economist at Nomura Securities. “What’s especially encouraging is that price gains are deepening across the country.”

Though closely followed by economists and the markets, the Case-Shiller index is a lagging indicator of values—a moving average now two months old. Still, other home-value and home-price indicators suggest price gains have continued into September and October—a possible explanation for why consumer sentiment, though low by historical standards, continues to improve.

The U.S. housing market has recovered largely thanks to the declining number of foreclosures, bank sales and other “distressed” homes that sell at big discounts and drag down prices. Meanwhile, as the cost of homeownership has fallen to the point where monthly rent exceeds mortgage payments in some markets, there has been a surge in demand at the lower end of the market.

Still, with inventory dwindling and household incomes still under pressure, economists caution that price gains will soon flatten out if job and income growth don’t pick up.

Price gains generally have been stronger in markets that were hit hard by the housing bust. Leading the pack was Phoenix, where prices were up 18.8% from a year earlier. Detroit, Minneapolis and Miami all posted year-to-year gains above 6%. The three cities with year-to-year declines were Atlanta, New York and Chicago.